Amid all the chaos of lunar new year adjustments, Chinese exports in March surged 16.4% YoY (-1.3% YoY in Feb) - the biggest jump since Feb 2015. Import growth fell back from February's surge (but surprised to the upside). Furthermore, China's trade surplus with the United States, another bone of contention for Trump, widened in March from February.

China's overall trade surplus rose in March after logging its first deficit in three years in February. With very limited details released so far, we cannot be certain about the drivers of the high March trade growth yet, but the following factors likely contributed according to Goldman:

1. Firm domestic and external demand growth.

2. Higher export and import prices. These prices tend to lag spot market prices and possibly still went up despite the correction in spot market prices. In value terms, iron ore imports went up 101% yoy, higher than 96% yoy in January/February; steel products imports decelerated to 11% yoy, from 18% yoy in January/February; crude oil imports grew 99% yoy, vs. 71% yoy in January/February. In volume terms, iron ore imports went up 11% yoy, lower than 13% yoy in January/February; steel products imports grew 2.4% yoy in March, vs 17.2% yoy in January/February; crude oil imports grew 19.4% yoy, vs. 12.5% yoy in January/February.

3. Low base, especially for exports, which supported year-over-year growth. (March 2016 export sequential growth was -5.9% mom sa)

4. Chinese New Year distortions for both exports and imports but in opposite directions. Exports were distorted on the upside and imports on the downside. The magnitude of the distortions are highly uncertain, but potentially as large as 10 ppt. As a result March trade balance was heavily distorted on the upside, just as February balance was distorted on the downside which resulted in the temporary deficit.

5. Potential over-reporting, especially for imports to avoid capital controls. Export data may be impacted because some of these are done via round tripping.

However, Goldman expects growth in 2Q exports and imports to moderate because:

1. Domestic policy has clearly been tightened in a meaningful way. This will likely cool down domestic demand and with a lag impact external demand as well.

2. Upstream spot market prices already started to correct and will show up in trade data, especially import data as it is more affected by commodity prices.

3. Base (for year-over-year growth calculations) will become significantly higher in 2Q.

4. The government is likely to take action on over-reporting. Nevertheless, given how strong growth has been so far this year, annual growth of both exports and imports will likely be positive, for the first time in 2 years. Trade surplus is likely to be at a multi-year low given the relative strength of import growth.